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Contracts Chapter 3

Terms in this set (26)

What is consideration?
A bargained for exchange that requires a benefit and a detriment
Requirements of Exchange; Types of Exchange (R2 71)
(1) To constitute a consideration, a performance or return promise must be BARGAINED FOR
(2) It is bargained for if it is sought by the promisor in exchange for his promise and is given by the promisee in exchange for that promise.
(3) The performance may consist of
(a) an act other than a promise
(b) a forebearance, OR
(c) the creation, modification, or destruction of a legal relation
(4) The performance or return promise may be given to the promisor or to some other person. It may be given by the promisee or some other person.
Facts: Plaintiff ran in a 10k race as part of the hokey team's pre-season conditioning. As a result of the race, P suffered damage to his liver and kidneys because of dehydration requiring organ transplants. P alleges that D negligently failed to provide adequate medical services and water at the race. P signed a release before running the race.
When a party signs a waiver in exchange for something of value, the waiver is supported by consideration. P's surrender of a legal right in exchange for D allowing him to run was valid consideration.
When is forbearance valid in settling a claim? (R2 74)
(1) Forbearance to assert or the surrender of a claim or defense which proves to be invalid is not consideration unless
(a) The claim or defense is in fact doubtful because of uncertainty as to the facts or the law, OR
(b) the forbearing or surrendering party believes that the claim or defense may be fairly determined to be valid.
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If there is no evidence that P could substantiate a claim against D, then P's forbearance is not valid consideration.
In this case, the Foresters promised not to bring suit against Scott if the continued to pay child support (not valid consideration).
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Promises are illusory and unenforceable if they fail to bind the promisor, who is free to discontinue performance. But, if there is a larger consideration overarching between smaller agreements, consideration is valid. Here, Ruiz traded her money (consideration) for SCI's provision of funeral services (consideration). Though SCI does not give an even exchange of damages and benefits, they do on a larger claim between the two agreements.
R2 77: Illusory and Alternative Promises
An (apparent) promise is not consideration if the promisor reserves a choice of alternative performance, unless:
1. Alternate promise would also be consideration if bargained for
2. Alternate performance would have been consideration and there's a substantial possibility that there could be a circumstance which eliminates ability to act on the alternates
R2 79: Adequacy of Consideration, Mutuality of Obligation
If the requirements of consideration are met, there are no additional requirements of:
1. Advantage of the promisor/disadvantage of the promise
2. Equivalence of values exchanged
3. Mutuality of obligation
Facts: Defendant wrote a letter to Plaintiff telling her that after hearing of her husbands' death, he wanted her to move 60 miles to his property; D told P that if she moves, he will give her a place and land to tend. P moved her family to D's property; D gave P a comfortable house and land to cultivate for 2 years. After the two years, D moved P to a less comfortable house in the woods which he later made her move from.
A promise that is gratuitous is not enforceable for lack of consideration. The promise on the part of the defendant was a mere gratuity.
Facts: Uncle made a proposition to nephew saying, "If you will not drink any liquor, will not smoke, will not play cards or billiards until you are 21, I will give you $5,000 that day." When nephew turned 21, he wrote to uncle saying, "I am twenty-one years old today and I am now my own boss, and I believe, according to agreement, that there is due my five thousand dollars." Uncle wrote back "I have no doubt but what you have, for which you shall have $5,000, as I promised you. I had the money in the bank the day you were 21 years old that I intended for you, and you shall have the money certain." Uncle died before paying nephew and the executor of the estate refused to pay.
In general, a waiver of any legal right at the request of another party is sufficient consideration for a promise.
Pre-existing duty rule
Promise to do something you are already legally obligated to do is not valid consideration
Facts: The Alaska Packers owned a salmon packing factory and contracted to hire sailors and fisherman from California to work in Alaska during salmon season for $50 per sailor/fisherman plus $0.02 for each salmon caught. A month after the sailors/fishermen arrived in Alaska they stopped working and demanded a salary increase. It was impossible for the Alaska Packers to find and bring replacement workers from California in time to take full advantage of the salmon season, so the Alaska Packers agreed to the salary increase. They raised the wages to $100 per sailor/fisherman
When a party does what they are already merely obligated to do, it cannot demand an additional compensation. In this case, there was not additional consideration to support the later contract--it was a "hold-up game."
When can you modify an executory contract? (R2 89)
A promise modifying a duty under a contract not fully performed on either side is binding
1. If the modification is fair and equitable in view of circumstances not anticipated when the contract was made
2. To the extent provided by the statute
3. To the extent that justice required enforcement in view of material change in position in reliance on the promise.
UCC 2-209
An agreement modifying a contract within this Article needs no consideration to be binding so long as it is done in good faith.
Facts: Defendant provides the City with a refuse-collection service under a series of 5-year contracts. D entered a 5-year contract with the City to receive $137,000 per year in return for collecting and removing all combustible and noncombustible waste materials generated within the city. 3 years into the contract, D asked the city for an additional $10,000 per year because there had been a substantial increase in the units he would need to collect from. The City Council voted at a meeting to pay D the additional $10,000 that year and voted again the following year to provide another $10,000. The City then sued.
When unexpected or unanticipated difficulties arise during the course of performance of a contract. The parties may modify the initial contract even without additional performance of a contract without additional consideration so long as: (1) the modification was made before the contract had been fully performed by either party; (2) the contract was premised on defendant's past experience and it was uncontradicted that the increase was beyond previous expectation; (3) the increase was substantial.
What is past consideration and when is it valid?
You cannot bargain for something that has already happened. There are 3 exceptions: (1) a promise reviving a previously legally enforceable obligation now barred by an applicable statute of limitations period, (2) a promise to pay an obligation rendered discharged by insolvency, and (3) a promise to pay an obligation incurred by an infant.
Facts: Defendant assaulted his wife; wife took refuge in plaintiff's home. The next day, D came into P's home and assaulted his wife again. The wife knocked D down with an axe and was about to cut his head open with the axe when plaintiff intervened. P was injured when she got in between the axe and D. Defendant orally promised to pay P for her damages but never did.
A voluntary humanitarian act does not constitute sufficient consideration to support a contract.
Facts: Plaintiff took in the decedent (25-year-old poor, ill sailor). The decedent was no longer part of father's family. D wrote a letter to P after all of D's expenses had been incurred promising to pay P.
A promise based on a moral obligation but made without legal consideration does not constitute an enforceable contract unless it is tied to a preexisting legal obligation.
When does unjust enrichment and restitution apply?
If a party can prove that he conferred a benefit on another without intending to act gratuitously, and under certain circumstances where it would be inequitable for the other party to retain the benefit without providing compensation, causing the first party to be entitled to restitution for the value of the benefits conferred.
R2 86: Promise for Benefit Received
1. A promise made in recognition of a debt previously received by the promisor from the promise is binding to the extent necessary to prevent injustice.
2. A promise is not binding under (1):
a. If the promise conferred the benefit as a gift or for other reasons the promisor has not been justly enriched; or
To the extent its value is disproportionate to its benefit.
Facts: Plaintiff and defendant were both employed at lumber mill. P was dropping large pine block (75lbs) from the upper floor of the mill to the ground. As P was going to drop a block, he saw D standing on the floor below. P knew if he dropped the block it would fall and injure or kill defendant and the only way to prevent that would be for P to fall with the block to redirect its landing; so he did. P sustained serious injuries that left him crippled for life. D recognized that P saved his life and agreed to pay plaintiff $15 every two weeks to sustain him since he could not work. D made these payments until he died; and then D's estate refused to continue payments.
Where the promisee cares for, improves, and preserved the property of the promisor, though done without his request, it is sufficient consideration for the promisor's subsequent agreement to pay for the service because a material benefit is received.
What's the difference between promissory and equitable estoppel?
One is a promise (promissory) and the other is a performance (equitable)
Facts: Grandfather visited P at work, hands her note saying "you don't have to work anymore." P immediately informed her employer that she quit. P did not work for a year. Grandfather died. Grandfather had paid one year's interest on the note before his death and expressed regret that he couldn't pay the balance. Before death, Grandfather told P's mother (his that if she sold his farm, he would pay off the note.
If a gratuitous promise induces an action or forbearance that would not otherwise be taken, it is enforceable under the promissory estoppel doctrine.

While D said Rickett's offer to give P a substantial sum of money was not consideration because it was not bargained for, the court held that the offer caused P to leave her job—thus justified under promissory estoppel
Plaintiff thought he was being underpaid by his law firm. In meetings with the managing partner, Plaintiff discussed what a reasonable trajectory would look like. Plaintiff, after quitting because of his dissatisfaction with the reality of his raises, began to look for other employment (he even did so while he was still employed.)
In order to successfully claim promissory estoppel, you must be able to sufficiently prove that the promise was relied on to the detriment of the promise when the promise was not carried out.
Facts: Plaintiff was a general contractor preparing to submit a bid to build a nursing facility. Defendant (subcontractor) submitted a bid to P for some parts of the construction. P's overall bid for the nursing facility included the amount from D's bid. The nursing facility awarded the construction project to P and D declined to honor the bid. P was unable to withdraw its bid from the nursing facility and had to complete construction of the nursing facility with a different subcontractor that charged a higher price.
To recover based on promissory estoppel, a plaintiff must demonstrate that the defendant made a (1) promise that the defendant should have (2) reasonably expected would induce the plaintiff's action or forbearance, (3) that the promise did in fact induce the plaintiff's action or forbearance, and (4) that injustice can be avoided only by enforcing the promise
Facts: Decedent was visited by plaintiff's spiritual leader throughout his prolonged illness. During some of the visits and in the presence of witnesses, decedent made promises to give P $25,000 which P planned to use to build a library named after decedent.
An oral promise for a charitable gift is generally not enforceable in the absence of consideration or reliance on the promise.
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